Trickle down vs. trickle up

The more businesses are left alone to do what they do best (sell a product or service), free from regulations, external influences and excessive taxation, the better they will be.

Loans and extra profits can be then used for more business creation and business growth, which in return drive more economic prosperity for investors, and that also "trickles down" to workers (as jobs and better salaries) and consumers (as lower prices) and everybody benefits in the end.

Or so the story goes.

Although the theory says that when investors gets richer, they use this extra wealth to promote more businesses, and in the process creating more jobs and driving prices down through specialization; there are many examples where the extra wealth is either just accumulated, or it is invested in ways that do not create jobs nor drive prices down.

Would things work in reverse?

What if individuals rather than businesses were the recipients of loans (micro), left alone to do what they do best (which i contend is creativity), as free from regulations, external influences and excessive taxation as possible.

They would then require raw materials and more people to put their ideas into action, they would need products and services offered by bigger businesses. In the end, everybody would benefit and the economic prosperity would trickle up

Nov 3 2012:
The free market is indeed free. It's free of responsibility, accountability and liability. It's free of giving any value to natural resources, ecosystem services and all of the 'commons' we share living on this once garden planet. This disconnect is getting bigger every year with the eventually outcome of inter-generational civil war, as our children and grand children understand how selfish we have been. We need new analysis that understands these new dynamics, not looking backwards into the rear view mirror. Wake up...

Many discussions here on ted quickly fall into a believers of free market vs. non believers of free market. I have rarely seen people switch sides or give up on convictions.

Problem with many of these discussions are that they are mostly philosophical. Economics is considered a science, but (and I will be considered blasphemous here), i do not see it nearly in the same category as mathematics, physics or chemistry. I see economics more sided towards philosophy than science

I am not sure if it is a problem of new or old. I don't agree with people who try to dismiss something because it has been tried before.

But i agree with you. The commons is something that worked for thousands of years before capitalism (look at the history of the native americans), and was successful for a period much longer than market economy has been in in practice. So it is false to try to dismiss the commons as tried but unsuccessful. These new dynamics you propose would actually involve going back to the past. Just a bit more distant past.

Whether pure free market works or not, i do not know yet, as i have not seen it at work (not without external influences). And i am not optimistic that it can be tried anywhere. So even though the theory is well developed, it still remains to be confirmed

However, both you and I live in some sort of market economy, and money is used, at least for now, to facilitate transactions between individuals.

By trickle down or trickle up I am trying to focus on how money would flow if investment were to be made differently (in individuals and micro businesses rather than big businesses)

I realize it is a mental exercise, but I am trying to use it to highlight the way money actually flows in the type of economy we have today, and maybe find ways to improve it

I must agree with you, economics is further from art than it is from science, but so is psychology, and yet i consider psychology easier to test scientifically than economics (based on ease of repeatability)

Mind you that i don't consider art (or philosophy for that matter) as deriving from ignorance. I value both and as a musician, i am well aware of the value art brings into my life. I never considered economics would have much related to an art, but for those who do (even if it is in the sense of considering it some kind of magic and obscure art), i think i get your point about ignorance and concur

I lack a formal education in economics, but i do have a formal education in physics. And the way one tests science in physics is rarely seen in the field of economy.

That was the basis of my assessment of economics as more related to philosophy than science

Keeping with the art analogy though, both are an exercise in communication. Art through the medium of stories, painting, movies, etc. The economy through the medium of exchange and money. Either way they fulfill the communication through understanding in the case of art or exchange in the case of the economy. With the artist his goal is to hear the observer say oh I get it. With the seller it is yes I want to buy that. Does that make sense?

The reality is that the economy has predictable elements to it. E.G. the government makes a lot of money available for housing the price of housing goes up. The government makes a lot of money available for education the price of education goes up. The government subsidizes ethanol the price of corn goes up. The government prints money the value of money goes down. The government set the interest rates lower than the market indicates money becomes more plentiful. The government lowers the money supply you have deflation for 15 years. Do you see a pattern?

It is less predictable when you look at the human element. By definition money requires confidence. When the confidence is lowered so is the value.

Nov 3 2012:
Not philosophy...psychology. Economics is based on belief and fear underlying processes that we have developed over the centuries to keep everything running.
A free market is a market free from control. This is an acknowlegment that the market, even a simple one, is too complex to be completely controlled. When it is controlled, underlying fears that the processes of the market can't be trusted and it all collapses.
It's not a science in my opinion because when the 2007 collapse started, all the technical predictors suddenly disapeared after realizing that their predictions were as accurate as horoscope predictions and based on a science as real as alchemy.

Nov 4 2012:
About the science of economics, I'll quote from http://wiki.mises.org/wiki/Austrian_School
BEGIN QUOTE
Austrian School economists advocate strict adherence to methodological individualism – analyzing human action from the perspective of individual agents.[25] Proponents of this method, praxeology, argue that the only means of arriving at a valid economic theory is to derive it logically from basic principles of human action. Proponents of this method hold that it allows for the discovery of fundamental economic laws valid for all human action. Alongside praxeology, the school has traditionally advocated an interpretive approach to history to address specific historical events.
Austrian economists reject empirical statistical methods as tools applicable to economics, saying that while it is appropriate in the natural sciences where causal factors can be isolated in laboratory conditions, the actions of human beings are far too complex for this "numerical" treatment as passive non-adaptive subjects. Instead one should isolate the logical processes of human action. Von Mises called this discipline "praxeology" – a term he adapted from Alfred Espinas (but which had been in use by others).[26]
The Austrian praxeological method is based on the heavy use of logical deduction from what they assert to be undeniable, self-evident axioms or irrefutable facts about human existence. The primary axiom from which Austrian economists deduce further certain conclusions is the action axiom, which holds that humans take conscious action toward chosen goals.[27]
END QUOTE

Of course, you'll have to follow the real literature if you want anything more than the samplers I can provide in TED chats.

indeed the mises.org has a lot of great information on the free market. I have spent many an afternoon reading there.

However, I have also read the work of Kahneman and Tversky regarding the process of decision under uncertainty, cognitive biases, framing and anchoring effects. I have also followed the work of Dan Ariely in behavioral economics.

There seems to be strong evidence against the theory that people decide and act as individual rational agents.

How does this fact change the standard free market theory? Has anybody adjusted for it?

In addition to the not-so-rational behavior of individuals, I was discussing with Bob (below) two other open questions i still have regarding the free market theory: 1) what about human survival in the thousands of years before money was invented?, and where are the commons in the theory? 2) what about the fact that demand can be easily altered by an agent with enough capital or access to resources? what does that say to the demand based value?

I'll be glad to read specific docs at mises.org if you have suggestions, i am always up for learning something new

Nov 6 2012:
Mises has written quite a bit about rationality and irrationality, and about uncertainty -- all in his "Human Action". Try the subsections called "Rationality and Irrationality; Subjectivism and Objectivity of Praxeological Research" and chapter 6, "Uncertainty".

Completely unrelated to Mises, the psychologist, Carl Rogers said "Man's behavior is exquisitely rational, moving with subtle and ordered complexity toward the goals his organism is endeavoring to achieve. The tragedy for most of us is that our defenses keep us from being aware of this rationality, so that consciously we are moving in one direction, while organismically we are moving in another."

Is there anything specific by Kahneman, Tversky or Ariely that you could refer me to?

Nov 6 2012:
some time ago ariely himself appeared in one of the TED conversations. he specifically asked why we, free market guys, believe that with all that weird things going on in the human mind, people can make right choices. my answer was that in a democratic setting, if 51% of people are wrong, we will do the wrong thing. in the free market, if 1% of people want to do the right thing, they can, and if it works, others will copy it. alas, he didn't reply to that, probably had better things to do.

so my take on that: i love what he is doing, but it is in fact in favor of free markets. the free market has a strong correcting effect, as it provides immediate feedback. on the other hand, complex systems like the state distances bad decisions from their consequences, and therefore lack this corrective force.

Nov 6 2012:
I agree with you Krisztian, in the sense that there are indeed self correcting forces in the free market. I guess the difference is that i think those correcting forces are not all pervasive.

I do criticize the free markets, but that does not mean i think the theory is completely wrong or should be just discarded. Only today (thanks to John) i learned about what Mises wrote on rationality and irrationality. I do think that a comprehensive free market theory should take into account behavioral economics as well, specially when behavioral economics can make specific predictions and be tested systematically

You say that in the free market if 1% of people want to do the right thing they can, but i propose that even for that 1%, in order to do the right thing they need to absorb a fair amount of information and to be aware of their own decision making bias (if by doing the right thing we mean a making a decision that will maximize their gain)

Not saying it is impossible. You, for example, know much more about how the market works, and you sound quite rational. So i can imagine that you would have less trouble being in that 1% doing the right thing. But I cannot say the same about every actor participating in the economic system.

And even being careful enough, and compensating for incomplete information, etc, we cannot avoid but to receive some of the economic effects of decisions by other people not being so rational

I fully agree that distance decreases the likelihood of self-correcting mechanisms (hey i am for government as small as it can possibly be!)

Nov 6 2012:
@Krisztián Pintér: "if 51% of people are wrong, we will [all] do the wrong thing" is an excellent reply to Ariely! But IMO, it only works against Ariely and his sympathizers because they seem to have fallen into the trap of believing that:
1. Irrationality is ubiquitous.
2. Therefore irrationality is the rule, rather than the exception.
3. Except, mysteriously, in governments. (the fault that you pointed out)

I think Ariely has to put in a lot more work to even make 1. convincing. (This is my understanding based on just his talks -- I haven't read his research papers.)

Nov 6 2012:
"I do think that a comprehensive free market theory should take into account behavioral economics as well"

and i think it should not. just as it should not take personal values into account. economics takes people's preferences and choices as granted. we don't need to further examine that, it is enough to say that people do pursue their own happiness, so some of their actions are aimed at those. that is all we need.

"but i propose that even for that 1%, in order to do the right thing they need to absorb a fair amount of information"

first: no they don't have to. people just act differently, and some of them randomly does the thing that works. evolution does this, and it works. second: no doubt understanding is better than random chance. some people did the research, and acquired the necessary information to make the right choice. that is enough. we don't need to appoint such people. we just let them do their stuff, and see what works.

it does not matter of other people don't do the right thing. they use their own stuff, so they only can ruin that. the loss will tell them that they should change tactics.

and one more note: there is that thing called the "nirvana fallacy". it is an error dismissing an idea for it is not perfect. the alternative is not perfect either. we don't need perfect solutions, we need the best solution. and it is not too hard to show that freedom is a better solution than a state. after all, all the problems individuals face, the state also faces. what makes them less susceptible to errors? nothing. every organization is susceptible for errors. success lies in the correction mechanisms, not in fallibility.

Nov 6 2012:
One of the biggest issues i see with free market theory is a particular instance people call "the corrective forces or the market", referring to the way stock markets work today

Maybe if individuals bought their own stock, making personal gains and taking personal risks, i would give the idea of this exchange of stock a bit more credit as a corrective force. But the fact is, most exchanges in wall street are subject to human factors: fears, rumors, conflict between benefiting one customer over another (I think Dan Ariely is onto something here). And the effects of brokers' decisions usually "trickle down" to third parties

Even if individuals were the sole players in the stock market, we would still have to account for the fact that our brain is incapable of having an intuition about small vs large probabilities, that is correct enough to trade stock successfully. So even individuals would fail to make rational decisions most of the time

There is little we can do to change our brain physiology, evolution does not work that fast

On people's preferences, I disagree with you. I can consider the idealization of individuals as having preferences and choices granted, but i know it is a mental exercise, useful for the theory to remain solid. But at the end of the day, one must step back from the idealization (just as we must step back and see nirvana for what it is, not a destination but a useful pointer), and accept that humans are not such ideal creatures. And i do see the imperative of further examine it

As I have said, i am not for dismissing free market theory just because it is not perfect. i am trying to see it as a scientific theory (this, too an idealization) and follow the same example i've seen thousands of times in the history of science: when facts remain unexplained by a theory, it is not always necessary to discard it, but to incorporate it into a bigger, more general theory

Nov 6 2012:
" But the fact is, most exchanges in wall street are subject to human factors: fears, rumors"

we can elaborate it all day long, but the bottom line is the same: those that sell or buy out of fear or misconception, will lose money. either they mend their ways, or lose everything. at the end, irrational elements will be eliminated from the marketplace. we can dig deeper how to avoid such traps, but we don't have to. just with the trial and error, we will find the right people for the job.

another question would be the proposed solution to that "problem". how would a state fix this? how would laws fix this? what would make the legislator free of such influences? why would any other solution based on people any better?

"I can consider the idealization of individuals as having preferences and choices granted"

it is not what i have said. i said this is granted from the POV of economics. of course it is a forever changing input, but we should not care. there is a reason why we should not care. the reason is we can't override what people want according to what is "good". it is an evil way of thinking. the only moral way to change what people want is through arguments. but then, if we did that, people just have a new set of values, and economics should not care about the reason, it is enough to deal with the new situation. whatever people want, the economy can provide.

" i am trying to see it as a scientific theory"

free market is not a theory. it is an artificial construct. we claim that it is the best arrangement for humans to live in. that claim is based on theories, namely economics and ethics. but in fact we can argue from purely ethical standpoint too. so i'm not sure what you are talking about here.

Nov 6 2012:
Thanks for the links. At the risk of sounding arrogant, I'll confess that I had come up with the idea behind Prospect Theory by myself, a few years ago. :-) But, I do not mean to imply that I had worked out all its repercussions and done existential research that Kahneman and Tversky might have done.

The reason I bring it up is to explain that I had already factored this into my understanding of economics, but this seemed to have no bearing at all to whether or not free markets are good. Of course, if someone else has done an analysis, I'm open to reading it.

However, Prospect Theory has a good deal to say about the voting system: http://www.youtube.com/watch?v=s7tWHJfhiyo (This video does not make the connection explicit, but keep it in mind as you watch the video.)

I just finished watching Ariely's talk, "Are we in control of our own decisions?". The message it brought me was "question your choices, especially your defaults". Another thing it highlighted was that marketers (of subscriptions to The Economist, in this case) had already figured out what psychologists are only discovering now. :-)

All this is fine... I can see that these things may influence /some/ things: like my choice of shirts to buy, or brand cooking oil I use. It seems to have had no effect at all on my professional life. When I built robots, for example, it was always things like technical suitability, availability, cost, existing tool-set, and other hard facts. Companies did send marketing material, like the coolest new voltage regulators, ADCs, flash memories, etc., but none of it ever swayed me or any other engineer I have worked with. I must add that I had complete authority on what could go into my systems. Similar hard-factors applied when interviewing people to work on my teams, etc.

Ariely's message seems to have been pointless in my professional life. But I have not read his book. Since you have, I ask you: can you see that kind of irrationality in your own professional life?

Nov 7 2012:
it is of key importance to mention that all these experiments always have mixed results. we marvel at the 80% or 55% that make weird decisions. it is a ritual now among many people to recite such result like some mantra. but nobody seems to talk about the 20% or the 45% that did not fall for the trap. we don't hear about it. everybody knows about these experiments, but let me ask a few questions about those rational percentage.

1. some people always rational, or many people are rational sometimes?
2. what circumstances help or hinder rationality?
3. what are the personality traits, gender, age, profession distribution of rational people?

Nov 3 2012:
"The free market is indeed free. It's free of responsibility, accountability and liability. It's free of giving any value to natural resources, ecosystem services and all of the 'commons' we share living on this once garden planet."

Exactly, as long as the rich can retreat to gated communities at locations of their choosing they will not be concerned with what happens to the rest of the planet.

Nov 6 2012:
It takes money to make money, and for that reason wealth tends to centralize. Today there is unprecedented centralization of wealth and the so called "trickle down effect" is nowhere to be seen. Middle class incomes have stagnated for the past few decades.

There are always exceptions, of course, political forces and disruptive technologies can also change demographics of wealth. Usually, though, things don't go as planned and everybody becomes an expert in hindsight.

I believe the phrase "trickle down effect" is a PR term to justify tax cuts to the wealthy that are a tough sell to many voters.

Nov 3 2012:
wealth should not trickle anywhere, it should be in the hands of those that created it. we simply should stop thinking about how other people spend their money. i don't care what the goal is, balance, fairness, great society ... if you believe the world would be better if some people used their property in a certain way, tell them. convince them. but do not speculate on how should "we" use their money.

Nov 3 2012:
Hi Krisztian (and please forgive i have not figured out an easy way to bring up accents in this keyboard to spell your name correctly)

Several times in the past we have talked and i must say that i have learned quite a lot from those exchanges.

In principle, I agree with your first statement, yet i don't think you and agree in who is it that creates wealth. Example: when someone misses a monthly payment on a loan, financial charges (in addition to interest) are created and the money supply grows yet a bit more, is that creating wealth? Or exchange rate speculation. I see wealth creation when investment drives new and better products and services, and I see both the investor and the people inventing and improving these are wealth creators. Who are the creators for you?

You ask me not to speculate how should money be used. Yet, you and I have agreed that there is no country in this world that runs a pure free market economy, so in a sense when you explain what free market theory calls for, you are also speaking about how money should be used

I am trying to talk about how money IS used, and highlight what i see wrong there. I do not think that we should simply accept that the way money IS used arguing that if we let it follow some invisible rules, a common good will be ensured. If at all, that would require (assuming the theory were indeed correct) that pure free market was allowed to function. But as i have said before, I do not recall any country that runs a pure free market economy.

So I guess I am doing here what you suggest, I believe the world would be better if some people used property in a certain way, and i am telling so. But isn't the first step to recognize how money is actually used today? and to share that information too?

Trickle down and trickle up are just generalizations that differ only slighlytly. In one wealth creators are assumed to be a wealthy few, in the other wealth creators are assumed to be the average individuals

certainly not, and it is one of the biggest problem of today. our money supply is increasing, and we overlook the question: who gets the extra money? banks get it and the state get it. we should put an end to it the sooner the better.

" Or exchange rate speculation"

this is a whole other issue. exchange rate speculation is in fact a forecast/appraisal job, which is extremely important. for example, what will be the exchange rate of gold vs GE bonds a year from now. to know this, you need to evaluate GE's business strategies. of course, if you mean currency rates only, it creates nothing, it is just trying to figure out how much government will dilute their money. it is important as long as they do, but it is more like a defense against destruction than creating anything.

" Who are the creators for you?"

anyone who has an idea that works. that is measured by profit, IF we are in free cooperation setting. any two persons come together and decide to exchange some products or services create wealth. that is the essence of a free market. we need to understand that it is easy to make someone better off by robbing someone else and handing out the loot to our preferred class. this is not creation. this is predation. only voluntary interactions create wealth.

"So I guess I am doing here what you suggest,"

yes, but one has to be vigilant. it always starts like this. first we agree that some behavior is good. then we proceed forward, and claim that not doing the right thing is evil, and we need to enforce good behavior. similar arguments are considered disgusting or evil. how about i argue that donorship is good, therefore it is a good idea to every now and then kill someone and use his organs to save many lives. this is horrible. but proposing that we need to tax the rich and give to the poor is okay. why? it is the same thing.

Nov 7 2012:
Trickle up. When corporations and governments, pay workers better, workers immediately spend the money buying products, which increases overall corporate profits in the system. Thus, employers, should be competing to offer proud confident people the best pay available for their labor, instead of competing to find the most desperate people, willing to work cheaply.

However, a company who pays well, for the same quality labor, cannot compete in the short term on price, with a company that does not, and that is where government can play a role in encouraging business to race to the top, rather than the bottom. The less money the human race thinks an hour of labor is worth, the less money corporations have the potential to make.

Nov 6 2012:
Andres, Karl Marx put the value of the product in the craftsman. Adam Smith put the value of the product in the supply and demand of a free market. In a manner of speaking Marx was a bottom up and Smith a top down thinker. Now there is a common problem. Investors. Call it a loan or whatever you desire, but it is an investment. If there is "confidence" that the product has a market and the market has the resources to support the product then a deal is struck by either banks or venture capitalists.

In the bottom up theory I find that management is frowned upon and taking from the workers/craftsmen thus the organization stops at the lowest level ... product development.

In the other model the organization includes the necessary craftsment but also the suppliers, sales, transportation, and other departments that would allow for growth. That growth is called profit and is used to pay the investors, the workers, and for expansion.

Marx would do great for a sculpturer who could manage a small business with limited needs and selective customers. Financing would be enough for a block of marble and a small advancement. In almost every other venture it would fail at the initial stages. Even unions who hate management have managers at every level and a glut of executives. Now thats funny I don't care who you are ... that there is funny.

Wealth has always been concentrated. Royality married royality ... keeping it in the family. Rich married rich .... keeping it in the family .... The wealth is probally better distributed worldwide than ever before. Example: How many millionaires is there today in China, Russia, Europe, all of these places had supreme rulers and families owned the country call dynasties, czars, imperial families, etc ... that was concentration of wealth.

The common man is richer that ever before and bitching loudly about it. In the 1800's you could name the US rich ... not today. Progress ... you bet.

Nov 6 2012:
Ah, i replied below and i did not see your most recent post Bob... But seems like the two posts are somewhat related.

First a clarification, while it is true that Adam Smith's theory aligns more with trickle down and Karl Marx's with trickle up, let me propose that they are not synonyms.

I do not view the arguments for trickle up as arguments in defense of Karl Marx's communism, just like i don't view arguments for trickle down as defending the free market. Trickle up can happen outside of a communist or socialist economic system, and in the same token, trickle down can happen in a communist or socialist economy.

My exercise with this debate is to imagine what the effect would be of promoting micro-investment as intensely as macro investment is promoted.

You touch on the topic of management, and I think that I can speak a little bit to that through my professional experience. I do not see how, even a micro business can function without some level of management. For sure I do not frown upon management (I am a big fan of the work of Peter Drucker). But it is a fact that in most of the businesses I have worked in, there seems to be an over-abundance of managers, and in general managers are over compensated compared to the real value they add to the business. Management is vital to business survival, yes. But over compensated and saturated management? mmm maybe not so much. Again, it is not an all or nothing.

Regarding concentration of wealth, i don't think the number of millionaires per country is any measure of wealth distribution at the individual level (example: the richest man on earth is from a 3rd world country with one of the highest levels of wealth inequality).

If the common man of the 1800's category were to include the native americans, or the people from what used to be the northern states of Mexico, or farmers in mainland China or Cuba, i am not so sure the statement of "richer than ever before" holds true. Progress has been selective

Nov 5 2012:
Bob Dylan once made the observation, "instead of coming up any higher, they would rather drag you down into the hole their in". Your comparison of East Russia and Germany does not attempt to create synthesis and/or integration but instead attempts to compare with lowest denominator. John, I'm not willing to play your game. Good bye.

Your claim that East Germany and Soviet Russia were the lowest denominators only speaks of your ignorance. Pick any country from the old East Europe. Or pick Cuba, if you prefer.

Instead of offering a rational argument, you prefer to play your game by pretending to not play your game. Even more ironic. Definitely a sign that you are an old hand at the game. (The ego must be protected at all cost, right?)

Nov 5 2012:
John, I guess your not able to connect the dots. Let me help.
35 years toward sustainable forestry adopting the wisdom of Gifford Pinchot to provide the greatest good for the greatest number for the longest time. The exact opposite of paracitic capitalism which is robbing future generations blind.
30 plus years in renewable energy and conservation from sales of solar hot water, diagnostics blower doors and duct blasters, to designing a sponsor designed conservation project. All focusing on the transition and implementation of an energy future that is sustainable and affordable, if the parasites don't poison the culture beyond any ability to find meaningful limits and use significantly less on all fronts. Which I do on a daily basis.

To exploring affordable housing concepts and prototypes and how that can integrate with forestry as well.

So if that doesn't connect your dots, Mr John. I'm afraid I can't help you.

Nov 5 2012:
Thanks to your elaborating, I can now point out the dots you missed.

"30 plus years in renewable energy and conservation from SALES of solar hot water, diagnostics blower doors and duct blasters, to designing a SPONSOR designed conservation project."

Do you think you would have managed to SELL or find SPONSORS in anything but a relatively free market? The people who bought from you had a good idea of where they wanted to spend their money. No one compelled them. The same goes for the people who chose to sponsor you. Since you believe that being environment friendly is good for us all, you probably find it part of your self-imposed duty to educate others about it. That's approximately what I'm doing too.

Now imagine living in Soviet Russia or East Germany, and trying to convince the government that they must buy the kinds of products you're selling (if not from you, then from anyone who makes similar products), or imagine trying to convince those government officials to sponsor your schemes. Sure, you might have succeeded in finding the favor of some official, purely by luck, but without market-driven feedback, do you think such schemes would do justice to the effort and money spent on them?

Nov 4 2012:
My father-in-law, who was a living embodyment of Archie Bunker, said that if we distributed all the money on Earth evenly among all the people on Earth, it would take just ten years for the money to return to where it was. I think he was right. Trickle direction is always down. Food scraps don't fall to the ceiling, but to the floor.

Nov 4 2012:
Edward, looks to me that your tree didn't grow that far from your fathers.... Once self serving and selfish, always self serving and selfish. It will be interesting when our economic system (which is only supported by our mutual confidence) goes belly up, for many of these same selfish reasons which you embody. Your children and grand children will inherent the same massively dysfunctional world as mine, unfortunately..

Nov 4 2012:
John for your benefit...in case you missed it. My previous post.
The free market is indeed free. It's free of responsibility, accountability and liability. It's free of giving any value to natural resources, ecosystem services and all of the 'commons' we share living on this once garden planet. This disconnect is getting bigger every year with the eventually outcome of inter-generational civil war, as our children and grand children understand how selfish we have been. We need new analysis that understands these new dynamics, not looking backwards into the rear view mirror. Wake up...

Nov 5 2012:
I am a man of many offenses. My character will not withstand even much less vigorous attacks than yours Mr. Patterson. I do think your energy and intellect could be put to more constructive use than assassinating my tattered character. Harvesting such low hanging fruit will not lead to much by way of improving understanding and furthering truth. So, having expounded on your opinion of me personally have you anything constructive or informative to say relating to the topic?

Nov 3 2012:
All boats rise with the tide.
When I produce a valued commodity that I can exchange for a valued commodity that you've produced we both come out ahead. I can continue producing my specialized commodity for exchange without retooling to produce the commodity I can bargain with from you or others, and then so can you.
Henry Ford valued a parity of production by producing cars that his workforce can afford. Mr. Ford got rich, his company thrived, and his example of production fueled an engine of economic prosperity.

Even though i do not entirely share the point of view that it is the investor who creates value (without accounting for the value that creators and workers bring), I do share with you the opinion that small businesses are indeed the main driver of most new jobs.

Now, as for the example, just look at the profits posted by any of the big oil companies in the past 10 years. Then let's compare it to the number of jobs they have created, or the improvements in their industry that have resulted in lower costs and hence better prices for consumers.

That is one example, but it can be found in other industries (the Financial Sector comes to mind) as well

ALL of the new jobs are created by small business, this is the core of the free market. E.G. LED lights come along and take market share away from existing light bulb manufactures. Existing business s shrink and expand but the aggregate is no new jobs.

Anyway the key is to nurture small business investment. Which is the absolute problem with the existing administration.

Nov 3 2012:
Unless you count General Electric as a small business the LED light didn't come from small business. Big business and small business both create jobs and both receive investment money, however this does not mean all the money rich people have goes towards investments that create jobs. Speculation on precious metals, real estate, food and oil are examples of investments that create neither jobs nor wealth.

Nov 3 2012:
Anders and Pat, Anders you sated " ... the value that the workers bring" That is straight from Karl Marx. His thought was that the value of the product was in the craftsmen not the demand for the product itself. On the other hand the Economist Adam Smith recognized that the free market was the single source of the wealth of nations. He also penned a book of the same title .. which is good reading ... hint hint. In his travels he saw the results of the goods from England and the goods from France brings prosperity to both nations and gave truth to the free market system and the supply and demand of the consumers. Money standing still was losing money and therefore investors were sponsoring new businesses .... for a fee. If the demand existed then the small business grew and the cycle repeated itself. The investor, the firm, and all employees benefited through this trickle down economy of free market, capitalism, and supply and demand.

Thanks for the reference, indeed I have been fortunate (or at least more fortunate than unfortunate, wink wink back) to read Adam Smith and his wealth of nations.

But even though i enjoyed reading it, i would not go as far as to say that Adam Smith's theory works flawlessly.

Later, though, Krisztian was kind enough to point me to the von Mises Institute's website (mises.org), where i have learned a lot more about the austrian school of economics and the free market theory.

Also, many years ago, I went through Das Kapital, and i found it a dense read, with some good as well as some not-so -good parts.

I am not an economist, by far, so my opinion is that of a newbie. But the issue i see with the work of Smith and the work of Marx (and even the work of von Mises himself), is that (again, in my opinion) they fail to account for a few things:

1) prior to the invention of money, humans were able to survive for thousands of years, and the use of common "property" was much more prevalent than individual property. Reading Smith, Marx or von Mises, it appears as if human history prior to the invention of money/economics is negligible. Human history is much older than civilization history. And this is relevant because basic human needs have not changed since humans first walked the planet, and basic human needs play a role in any economic system.

2) According to what is now understood in cognitive science, humans are not truly rational agents, and the decision making mental process does not (by far) have the blind and consistent objective of maximizing individual economic gains

3) With enough capital or access to resources, demand can be manipulated, thus making the demand based value a bit less accurate than it sounds in theory. Expecting that an invisible force will always flatten this altered demand seems to require certain amount of blind faith

Of course, it is entirely possible that i got it all wrong

cheers

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